topic 401k education withdrawal in Education

401k education withdrawal

ScudS — Mon, 13 Jul 2020 17:43:02 GMT

I am trying to understand the implications of an early 401k withdrawal for mostly education expenses. Say I withdrew $60,000 for education expenses but I had grossed it up $12,000 (20%) to cover income taxes due on the withdrawal for a total of $72,000 withdrawn. Am I allowed to report the $72,000 as education expenses to avoid paying the 10% penalty on both amounts? Otherwise I am paying a 10% penalty or $1,200 which seems wrong. Any advice?

Re: 401k education withdrawal

MinhT1 — Mon, 13 Jul 2020 18:20:45 GMT

The exception to the 10% tax penalty on early distributions for qualified higher education expenses only applies to IRA, SEP and Simple IRA plans. It does not apply to withdrawals for 401(k) plans.

Please see this IRS document for more information.

In any case, you have to apply the gross distribution to the education expenses. The tax withheld is for you to take care of.

Re: 401k education withdrawal

ScudS — Mon, 13 Jul 2020 18:30:16 GMT

To clarify, I meant to say IRA not 401k. Sorry about that.

Re: 401k education withdrawal

ScudS — Mon, 13 Jul 2020 18:32:34 GMT

Too clarify, when you say gross distribution you are saying the $72,000 in the example I had provided correct?

Re: 401k education withdrawal

AnnetteB6 — Mon, 13 Jul 2020 19:56:38 GMT

You are allowed to apply the exception to the early distribution penalty on the amount that was spent on education expenses. If you spent only $60,000, then you will owe the penalty on the other $12,000. You would need to have spent $72,000 on the education expenses in order to apply the exception to the total distribution.

@ScudS